PRIVATE EQUITY INVESTMENTS in real estate dropped 93% to $238 million in 2020 till May compared to last year, as only five deals concluded during this period. The drop can be attributed to the coronavirus pandemic situation,
which has affected investor sentiments, as the economic slowdown in India in 2019. This year has also
recorded an 80% drop in the number of deals concluded in the first five months, compared to the same period last year,
revealed the latest report by Knight Frank India.
“Sharp slowdown in the domestic economy and specifically real estate sector will keep the investors cautious. Moreover, with international funds reorienting themselves to attractive opportunities in the developed economies on
account of the drop in valuations due to recession, this would cast its shadow on the PE investments in Indian real estatein2020,” the report said. After rising in between 2015 and 2018, the Private Equity investments in office assets declined in 2019. Lack of the mature office assets kept the investors at bay. Although, some interests have been there in under-construction and greenfield developments as well. So far in 2020, only 2 deals, amounting to around $141 million, have been concluded, with transactions for around 2.9 million square feet of office space.
The retail sector has not seen any investments far this year. Because of the pandemic, many tenants in India have
appealed to the ‘force majeure’ that clause in their rental agreements and are so demanding rent-free periods and also other concessions to compensate for the shutdown as well as lockdown. real estate Retail occupiers are likely to push for greater revenue share arrangements instead of the existing models of minimum guarantee plus revenue share. Warehousing saw only 2 deals, suggesting an overall investment volume decline in warehousing space because of the lockdown. Although, the adverse impact of the pandemic situation on the warehousing segment will be relatively less compared to other asset classes. This year, there was only one Private Equity investment in the residential sector worth around $40 million. The beleaguered residential sector has been further impacted because of corona virus.
Residential sales were slow and also the demand from homebuyers is expected to dwindle this year, as the report
observed. Shishir Baijal, the chairman and managing director, Knight Frank India, told that – “The decline in PE investments in real estate had started in 2019 when it fell by 23% y-o-y to $6.8 billion. We are operating in uncertain
times. Having enforced one of the most stringent lockdown measures globally, 2020 would be a challenging year for Indian businesses. The recall of undeployed capital by sponsors, the emergence of attractive opportunities globally, an increase in risk premiums, contraction in Indian GDP, and Covid-19 related uncertainties would cast its shadow on investor’s sentiments and we expect the investor activity to be subdued in 2020.”